The One Big Beautiful Bill Act (2025 Tax Act), signed by President Trump on July 4, 2025, is favorable legislation for the real estate industry. The most important aspect of the legislation was that several adverse tax proposals were dropped at the last minute by the Senate just before enactment. Chief among these adverse tax proposals was the so-called revenge tax under proposed Sec. 899, which would have imposed retaliatory tax increases on residents and businesses from countries that were deemed to impose an unfair foreign tax. The revenge tax would have been a disincentive to inbound investment that could have caused a reduction in investment flows into U.S. real estate, creating a potential reduction in asset valuations.

In addition to dropping the revenge tax, the 2025 Tax Act includes multiple provisions that benefit the real estate industry.

Favorable Extension of Prior Rules

The 2025 Tax Act extends or modifies many of the taxpayer-favorable provisions of the Tax Cuts and Jobs Act of 2017 (2017 Tax Act). Several provisions are especially beneficial for the real estate industry. These include:

• Lower Tax Rates: The top 37% marginal tax rate for individual income taxpayers that took effect in 2018 under the 2017 Tax Act was set to revert to 39.6% in 2026. The 2025 Tax Act makes the lower 2017 Tax Act individual income tax rates permanent. This benefits the real estate industry because many investors, owners, and developers are organized as pass-through businesses and are subject to individual income tax rates.
• Qualified Business Income: The qualified business income (QBI) deduction under Sec. 199A, which took effect under the 2017 Tax Act beginning with the 2018 tax year, allows eligible taxpayers to deduct up to 20% of their QBI from taxable income (subject to various limitations) through 2025. Generally, this deduction has the effect of reducing the top 37% marginal tax rate by 20% to 29.6%. The deduction is permanently extended by the 2025 Tax Act and is important to the real estate industry because it applies to rental, property development, and property management companies.
• Business Interest Limitation: Because real estate investments often involve significant debt, the interest expense deduction is an important factor for the industry. When the new 30% limit on the deductibility of interest expense took effect under the 2017 Tax Act in 2018, the interest expense limitation equaled 30% of EBITDA (earnings before interest, taxes, depreciation, and amortization). Starting in 2022, the 30% limitation on interest expense was tightened to equal 30% of EBIT. That is, depreciation and amortization created a much lower interest expense limitation. The 2025 Tax Act permanently reinstates the more generous EBITDA limitation for 2025. As a result, depreciation and amortization will not cause a reduction in interest expense deductions. While many real estate businesses made elections allowable under the law to be exempt from this limitation, this change in law gives real estate businesses an opportunity to achieve higher interest expense deductions without the need to suffer the negative effects of making such an election.
• Bonus Depreciation: The 100% bonus depreciation established under the 2017 Tax Act was being phased down and was set at 40% for the 2025 tax year. The 2025 Tax Act reinstates the 100% first-year (bonus) depreciation deduction permanently with respect to property acquired after January 19, 2025. This allows real estate owners and developers to deduct the entire cost of eligible assets (e.g., appliances, certain flooring, and certain building systems). The deduction can be maximized by performing a cost segregation study aimed at identifying parts of a building that are eligible for 100% bonus depreciation.

Favorable New Programs and Rules

The 2025 Tax Act modified existing and added several new programs and rules that are beneficial for the real estate industry, including:

• Opportunity Zones: The Opportunity Zone (OZ) program was established under the 2017 Tax Act and offered taxpayers the deferral of capital gains (and up to a 15% reduction in such capital gains when reported) in exchange for investing in economically distressed communities. The OZ program was set to expire for new investments on December 31, 2026. The 2025 Tax Act makes the OZ program permanent (with modifications) by creating new rolling 10-year OZ designations, beginning on January 1, 2027. It also adds a new Qualified Rural Opportunity Zone (Rural OZ) program that offers taxpayers the deferral of capital gains (and up to a 30% reduction in such capital gains when reported) in exchange for investing in economically distressed rural communities. The extended OZ program and newly created Rural OZ program will create new real estate investment opportunities for owners and investors.
• Bonus Depreciation for Qualified Production Buildings: The 2025 Tax Act allows 100% bonus depreciation for new domestic factories, refineries, or buildings used in agriculture or chemical production or that are used in manufacturing a tangible product. To qualify, generally, construction must begin after January 19, 2025, and before January 1, 2029, and be placed in service before January 1, 2031. While real estate investors generally cannot benefit from this new deduction, real estate construction companies will see an increase in new contract opportunities from such production companies. In addition, real estate development companies will see increased opportunities that typically arise adjacent to these production facilities, such as distribution facilities.
• Timing of Taxable Income from Residential Construction Contracts: Prior to the 2025 Tax Act, taxable income from construction contracts with respect to condominiums and apartments was recognized predominantly over the construction period. However, the 2025 Tax Act now allows taxpayers to defer such taxable income until the contract is completed. In many cases, the old law required taxpayers to pay tax earlier than when cash was available from the contract. The new law defers such taxable income to a point in time when cash is available to pay the related tax liabilities. Generally, this new law is attributable to contracts entered into after July 4, 2025.

For more information on these and other provisions of the 2025 Tax Act, see this Tax Release.

Items Not Included

Several tax proposals that would have had an adverse impact on the real estate industry were dropped from the 2025 Tax Act. These include:

• Excess Business Losses: Enacted under the 2017 Tax Act, the excess business loss limitation, which took effect in 2018, generally created a one-year deferral of trade or business losses that individuals could deduct (i.e., $626,000 for married filing jointly and $313,000 for all other filers in 2025). The 2025 Tax Act makes the loss limitation permanent. While the provision’s overall impact is adverse to the real estate industry because many businesses are organized as pass-through entities, a proposal was dropped from the 2025 Tax Act that would have significantly tightened the limitation by subjecting such loss carryovers to the same limitation in future years.
• Carried Interest: A carried interest (sometimes referred to as a profits interest) is typically granted to key management in real estate funds and businesses that entitles the holder to a percentage of the fund’s profits. While there has been discussion about treating such income as compensation income (losing potential favorable capital gain treatment), there were no legislative changes to the taxation of carried interest.
• Pass-through Entity Tax Workarounds: To help taxpayers bypass the 2017 Tax Act’s $10,000 cap on the federal deduction for state and local taxes (the SALT cap), many states created pass-through entity taxes (PTET) under which state tax is imposed directly on the pass-through entity, and allowed at the owner level a corresponding deduction, credit, or exclusion. A proposal that was to be included in the 2025 Tax Act but dropped before enactment would have significantly limited or excluded businesses from using PTET workarounds to minimize their federal tax liability.
• The Revenge Tax: As discussed above, the proposed House and Senate versions of the 2025 Tax Act would have added Sec. 899 to impose retaliatory tax increases on foreign investors connected to a country that imposes an unfair foreign tax on U.S. individuals or businesses. The increase in the rates of tax imposed on applicable persons could have been as much as 15% in the Senate version of the 2025 Tax Act and 20% in the House version. The revenge tax proposal was removed from the 2025 Tax Act before enactment as a result of the U.S. government’s agreement with G7 countries in exchange for their promise not to impose Pillar Two minimum taxes on U.S.-parented multinational groups. Proposed Sec. 899, if enacted, likely would have curtailed foreign real estate investment in the United States as capital gains from U.S. real estate sales, dividends, and interest income would be subject to the higher rates.

Future Uncertainties

While the revenge tax provision was dropped from the 2025 Tax Act, the possibility remains that President Trump may rely on existing law, under Sec. 891, to impose higher taxes on foreign investors. Section 891 was enacted in 1934 and permits the president to double the rate of tax imposed on citizens and corporations of foreign countries that the president proclaims are subjecting U.S. citizens and corporations to discriminatory and extraterritorial taxes.

It appears that no president has invoked the power under Sec. 891 since its enactment. However, President Trump continues to have the power to implement revenge taxes. On January 20, 2025, President Trump issued the memorandum America First Trade Policy, ordering the U.S. Treasury Department to investigate whether any foreign country subjects U.S. citizens or corporations to discriminatory or extraterritorial taxes pursuant to Sec. 891. A subsequent memorandum, released on February 21, 2025, Defending American Companies and Innovators From Overseas Extortion and Unfair Fines and Penalties, directs the U.S. Treasury Department to consider whether digital service taxes (DSTs) or similar levies are actionable under Sec. 891. The memorandum specifically cites DSTs imposed by Austria, Canada, France, Italy, Spain, Turkey, and the United Kingdom.

The Trump administration’s references to the retaliatory measure Sec. 891 could be no more than a negotiating tool to pressure foreign countries to remove DSTs and other levies that it deems to be unfair taxes. However, the administration’s repeated references to the provision highlight the possibility that it could be invoked. Until there is more clarity on this issue, foreign investors in the real estate industry should proceed with caution.

In addition to the potential negative effects on the industry from the imposition of higher taxes on foreign investors under Sec. 891, the industry could be negatively affected by higher interest rates. The 2025 Tax Act has generally been scored to create higher government deficits in the future. Such higher deficits, if they materialize, will put pressure on interest rates. Higher interest rates generally create a negative impact on real estate investments and development opportunities.

The Takeaway

The One Big Beautiful Bill Act generally has a favorable impact on the real estate industry. Companies in the real estate industry should look to take advantage of the opportunities extended or created in the act.